U.S. auto stocks got a boost in early trading after China’s President Xi Jinping pledged to open the economy to outside investors and lower the tariffs on imported cars. More broadly, U.S. equity-index futures pointed to a higher open as well.
In a speech at the Boao Forum for Asia in the southern province of Hainan, which was covered by Reuters, Xi said he would also raise the foreign ownership limit in the automobile sector as soon as possible and highlighted measures the government has already announced to open the financial sector to outside investors. His comments, noted Reuters, were largely reiterations of reforms already announced, but it did much to calm jittery investors, sending stocks higher on the prospect that tensions between China and the U.S. could be thawing. (See more: Stocks That Could Be Hit by a Trade War With China.)
In early morning action, shares of General Motors (GM) were 2.3% higher at $38.73, while Ford’s (F) stock was 1% higher at $11.37 and Tesla’s (TSLA) shares were up nearly 3%. The stock market was roiled in recent days over concerns President Donald Trump’s new tariff proposals could push the world into a trade war. China had previously said it would retaliate, but Xi sought to temper that stance in his remarks. “China relied in the past on creating favorable policies for itself,” Xi said, according to South China Morning Post. “We will have to rely more on improving our investment environment, we will increase our alignment with international rules, and our intellectual property protection.” (See more: Tesla: China Recall Affects 8,898 Vehicles.)
President Trump, a day earlier, took to Twitter to complain about the auto industry tariff imbalance between the two companies, arguing America has a 2.5% levy on car imports while China has a 25% one.
When a car is sent to the United States from China, there is a Tariff to be paid of 2 1/2%. When a car is sent to China from the United States, there is a Tariff to be paid of 25%. Does that sound like free or fair trade. No, it sounds like STUPID TRADE - going on for years!
— Donald J. Trump (@realDonaldTrump) April 9, 2018
“This year, we will considerably reduce auto import tariffs, and at the same time reduce import tariffs on some other products,” Xi said, according to Reuters without mentioning the U.S. specifically or saying by how much.
The Chinese government has vowed to reduce restrictions on joint ventures in the auto industry when foreign companies are involved for years. With the new regulations, foreign companies will be able to take a majority stake in a local Chinese car company. Foreigners are currently limited to a 50% stake with the foreign auto company precluded from opening factories that they fully own, noted Reuters. That had raised the ire of Elon Musk, the Chief Executive of Tesla, who has said he wanted to keep full ownership of manufacturing in a facility it is in discussions to build in China. In a tweet after Li’s speech Musk said: “This is a very important action by China. Avoiding a trade war will benefit all countries.”